China’s water pricing reforms for irrigation: effectiveness and impact

Irrigation occupies a central position in China’s crop production. However, due to low per capita water resources, much worse, unevenly distributed over regions and time and the rapid increase of water diversions to non-irrigation sectors, irrigation water shortages have become a very serious problem. Without the adoption of effective measures this problem may even threaten China’s food security. Currently, irrigation efficiency is very low in general, irrigation water prices cannot fully recover water supply costs, and irrigation facilities are aging due to the lack of funding for O&M (operation & maintenance). Since water prices are regulated by the government, and not determined by the market, water prices did not work effectively in water allocation. The adoption of more economic incentive measures, such as increasing water prices, has become the main strategy of the Chinese government. Since 1 January 2004, China has carried out a new water pricing regulation. The main objectives of this regulation are that water price should be increased to fully recover water supply cost and that water should be treated as a market good. In non-irrigation sectors, the consensus is that water price could be charged to fully recover water supply cost. However, there is still controversy over the charge of irrigation water pricing. Indeed, increasing water price to fully recover supply cost may seriously affect grain production, and farmers’ income. Past studies in China on these issues mainly focused on the theoretical aspects of the problem, analyzing whether irrigation water price should be increased or not. Little studies have quantified the potential impact of the reforms in China. The following questions need to be elaborated: Are irrigation water pricing reforms effective?; What are the attitudes of the farmers towards the reforms?; How do farmers respond to water pricing reforms?; What comprehensive methods should be adopted to achieve the goals of the reforms?
This project is based on the analysis of three case studies (Wudu, Jinghuiqu, and Shijin irrigation districts). Jinghuiqu is located in an arid region, Shijin is located in a semi-arid region and Wudu is located in the more humid Southwest. All the issues mentioned above, have been studied using econometric methods on the basis of the data gathered at the household, field canal, pump, and village level. The study reveals that the farmers’ ability to pay for irrigation water is still low and that the current water prices reflect the farmers’ willingness to pay, which implies that it is in fact very difficult to increase water prices further, let alone fully recover water supply cost. Farmers do not really participate in the irrigation management process, even at the field canal level, which limits the farmers’ willingness to pay. In areas confronted with severe water shortages, such as in the Jinghuiqu and Shijin irrigation districts, it is estimated that the volume of water use significantly affects wheat and maize yields, and the reduction of field water use will lead to the decline of grain production. In such cases, although increasing irrigation water price will encourage farmers to reduce water use, it may also force them to decrease their grain production. These measures affect the farmers’ revenues, which are largely dependent on crop production, thus increasing social inequities. Other policies need to protect weaker groups, such as poor farmers and farmers whose income mainly depends on crops. For instance, water property has still not been initialized and both irrigation bureaus and farmers lack incentives to adopt water-saving technologies. Initiating water property, expanding low-cost water-saving technologies, reforming irrigation management and fostering a water market are all important measures to achieve the policy goals of water-saving. At this point, it is necessary to emphasize that surface water price reforms may deeply affect groundwater resources use, especially in the conjunctive irrigation areas. Without the enhancement of groundwater resources management, saving surface water may lead to more overexploitation of groundwater resources, such was the case in the Jinghuiqu and Shijin irrigation districts.
All in all, irrigation water price reforms represent a revolution when compared with traditional irrigation water resource management in China. Comprehensive and integrated policies should be carried out. China being such a large country, reforms cannot be uniform in all areas. Different areas, with different precipitation levels, should adopt different measures. In most parts of South China, volumetric water pricing is not appropriate, since this method requires large infrastructure investments. Collecting water fees on the basis of the farmers’ irrigated area is an alternative policy, although it requires involving farmers in the irrigation management process. Even in the northern regions, the standards of irrigation infrastructure should not be overemphasized and more attention should be paid to the cost-benefits analysis of irrigation investments.